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Nigeria: The Coming Slowdown

Nigeria: The Coming Slowdown

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Nigeria’s economy grew by 2.27 per cent contrary to 2.1 per cent predicted by the International Monetary Fund (IMF) for fiscal year 2019. The growth also surpassed the projections of financial and economic analysts. According to the latest report from the National Bureau of Statistics (NBS), GDP growth in the fourth quarter of 2019 was 2.55 percent, highest since third quarter 2015. Notably, the acceleration was driven by the continued expansion in the oil, agriculture, information & communication, manufacturing sectors among others. Bamidele Famoofo however reports that analysts, again, have projected that GDP growth in 2020 may not follow the same trend seen in 2019, due to certain limiting economic factors

Recently, the National Bureau of Statistics (NBS) published Nigeria’s fourth quarter 2019 GDP numbers. According to the report, real GDP expanded by 2.55 per cent y/y, faster than revised figures of 2.28 per cent year on year (y/y) and 2.38 per cent y/y for Q3-2019 and Q4-2018 respectively. Notably, this outperformed consensus expectation and delivered the highest quarterly growth since Q3-2015. Accordingly, output growth in the economy settled at 2.27 percent in financial year 2019, beating the estimates of most analysts. “Notably, the acceleration was driven by the continued expansion in the oil, agriculture, information & communication, manufacturing sectors among others. Meanwhile, trade, which contributes c. 16.0 per cent to GDP remained contractionary for the third successive quarter, down 0.58 per cent y/y (vs. -1.45 per cent in Q3-2019 and 1.02 per cent in Q4-2018),” said NBS.

Review

The oil sector remained on the path of expansion, growing by 6.36 per cent y/y in Q4-2019. This was an improvement relative to Q4-2018’s -1.62 per cent y/y but slowed compared to Q3-2019 (6.49 per cent y/y). Notably, the y/y growth was fuelled by an increase in oil production 2.0million barrels per day (mb/d) in Q4-2019 as against 1.91mb/d in Q4-2018, following lower cases of supply disruptions, greater production uptime and the take-off of Total’s Egina project in early 2019. However, comparing Q4-2019’s production to Q3-2019, production slowed from 2.04mb/d to 2.00mb/d as Nigeria was reported to have adhered strictly to its supply cut quota by OPEC+ during the quarter.

In terms of contribution to overall GDP, the oil sector contribution remained relatively marginal at 7.32 percent, (an improvement when compared to Q4-2018’s 7.06per cent but a decline relative to Q3-2019’s 9.77per cent). Finally, the effect of lower crude oil prices which averaged $62.4/b in Q4-2019 compared with $68.6/b in Q4-2018, was outweighed by the increase in production, causing a growth of 10.6per cent y/y in nominal oil GDP.

Non-oil

Non-oil real GDP grew by 2.26 per cent y/y in Q4-2019, an improvement from 1.85 per cent in Q3-2019 albeit lower in comparison to 2.70 per cent in Q4-2018. Specifically, the agriculture sector grew by 2.31 per cent as against 2.28 per cent in Q3, 2019 and 2.46 per cent in Q4, 2018 while the services sector grew by 2.60 per cent in Q4-2019 compared with 1.87 per cent in Q3-2019 and 2.90 per cent in Q4-2018.

Overall, the performance for the non-oil sector was slightly better in FY-2019, up 2.06 per cent as against 2.0 per cent in FY-2018. Also, the contribution of the non-oil sector to GDP came in at 91.22 per cent in 2019 compared with 91.41 per cent in 2018.

Agriculture

The agriculture sector GDP grew 2.31 per cent y/y in Q4-2019, slightly better than Q3-2019 growth of 2.28 percent y/y but slower compared to Q4-2018’s growth of 2.46 per cent. Dissecting the components of the sector, crop production sub-sector which contributes c. 90.0 per cent of the sector’s GDP spurred the overall growth with an uptick of 2.52 per cent in Q4-2019 (better performance when compared to the growth of 2.41 per cent in Q3-2019 and 2.48 percent in Q4-2018). Similarly, the forestry sub-sector grew by 2.33 percent as against 1.68 percent in Q3-2019 and 1.97 in Q4-2018. Surprisingly, growth in forestry came in at 1.26 percent in Q4, 2019 compared with 3.78 per cent in Q3, 2019 and 1.74 per cent in Q4, 2018. On the other hand, Livestock sub-sector contracted by 0.20 per cent as against 0.02 percent in Q3, 2019 and 2.35 per cent in Q4, 2018. Overall, the agric sector output rose by 2.36 per cent y/y in FY-2019, faster than 2.12 percent in FY-2018.

Manufacturing

In line with manufacturing performing manager’s index (PMI) estimates for Q4-2019, the manufacturing GDP expanded by 1.24 percent y/y, higher when compared to Q3-2019’s 1.10 percent growth and lower than Q4-2018’s 2.35 percent. Notably, the uptick in manufacturing GDP was driven by growth in the plastic and rubber products (+3.08 per cent y/y) and food, beverage & tobacco (+2.69per cent y/y). However, major drags to growth came from oil refining (-25.71per cent y/y) as well as motor vehicles & assembly (-2.13per cent y/y). In summary, the stronger upticks recorded in the 10 of 13 subsectors of the manufacturing GDP buoyed the aggregate output. In terms of contribution to overall GDP, the manufacturing sector contributed 8.74 per cent to GDP (same as Q3-2019 but lower than 8.86 per cent recorded in Q4-2018).

Analysts’ Opinion

While economic experts and analysts were impressed by the growth rate delivered by the drivers of the economy in financial year 2019, they were unanimous in their opinion that Nigeria, the Africa’s largest economy, has not been recording real growth in recent times as population growth at about 2.6 percent still surpasses GDP growth, even at 2.27 percent achieved in FY 2019.

According to experts at United Capital Plc, “updating our GDP model with the latest numbers as well as factoring the recent CBN’s pro-growth policy drive, we expect the momentum in the Nigerian economy to improve relative to FY-2019, but remain at a sub-optimal level of 2.36 per cent y/y in FY-2020 – below population growth of 2.6 per cent.”

“These sectoral growth figures also suggest that holistically, the country is not really experiencing growth given the fact that its population growth is estimated to be around 2.7 per cent (annualised),” GTI research affirmed.

GDP: Beyond 2019

Another reason they gave to support their position is the continued closure of the land borders, which they said may hurt aggregate demand as a result of increased prices but has a positive effect on local production. “I

n addition, subsisting concerns around policy unpredictability which has been one of the biggest impediments to FDI flows and investment generally, as well as the reluctance to implement reforms that will spur private sector growth is worrisome.

A tepid outlook for crude oil prices amid demand shortages and the likelihood of a deeper supply cut in Mar-2020 suggest a negative impact on the broader growth number.”

The analysts also argued that the time span required to fix power and other critical infrastructure that will ease the cost of doing business and other structural impediments is a factor that may subdue growth in the interim.

Analysts at GTI in a recent report predicted a growth in the range of 2.1 and 2.4 per cent in 2020. “Going forward, we maintain our modest GDP growth expectation of 2.10per cent – 2.40per cent in 2020 amidst multiple downside risks such as global uncertainties, oil price volatility, insecurity, climate change impact, and lack of clear policy direction on the fiscal side.”

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